Netflix: Higher prices for high-def a possibility

CFO McCarthy says format war could drive up costs

By Danny King -- Video Business, 2/6/2008

FEB. 6 | Netflix hasn’t ruled out raising prices on high-definition rentals if a resolution to the format war between Sony’s Blu-ray Disc and the Toshiba-led HD DVD drives costs up, according to chief financial officer Barry McCarthy.

Blu-ray market share has risen since last month when Warner Bros. said it would release its high-def movies exclusively in Blu-ray starting this June.

“If a winner emerges and we experience some margin compression if a large number of subscribers rent in high-def, we’ll weigh the options of increasing prices,” McCarthy said.

Speaking at the Thomas Weisel Partners Technology, Telecom & Internet Conference in San Francisco this morning, McCarthy said Internet downloading won’t threaten DVDs as the primary home-entertainment delivery method until prices drop and the content is accessible through multiple devices.

A widely adopted downloading device would “need to be real inexpensive and an open system,” said McCarthy, who referred to Amazon.com’s Unbox downloading service as a “closed” system.

Netflix has been fending off competition from Internet downloading systems such as Unbox, which Amazon.com started in September 2006, and Apple’s iTunes, which began offering movie download rentals last month. Netflix also saw subscriber growth flatten after chain-store leader Blockbuster started its online DVD ordering service Total Access in November 2006.

Netflix, whose fourth-quarter earnings beat analyst expectations on an increase in subscribers, said last month that it expects to start offering its Instant Watch streaming service to users with Mac computers this year. The service has so far been available only on PCs because of digital rights management restrictions.

“There are 100 million DVD players in U.S. households,” McCarthy said today. “If you really think people are going to stop renting DVDs, you need to lie down until that thought passes.”